August 2012

CMP Series: Bed Tax and Spend

By Corrie Dosh

An occupancy tax - okay. But a tourism-promotion fee? A convention-center tax? An auditorium tax? With more and more ‘special assessments’ showing up on your attendees’ hotel bills, it’s time to understand what they are, what they pay for - and why CVBs can’t live without them.

Jamal Aaron Hageb, senior meeting manager for the Washington, D.C.–based American Bar Association (ABA), negotiated a $149 room rate for a December convention he is planning in San Juan, Puerto Rico. So how is it that when the convention concludes, attendees could end up paying more than $179 a night? Blame it on taxes and fees piled on top of the agreed-upon rate, a practice that makes Hageb feel “nickel and dimed.” “[The hotel] hit me with all these hidden assessment fees,” Hageb said. “If you don’t look at the fine print, you put your- self and your institution at risk for financial liability.” It’s not just occupancy and sales taxes that give industry professionals like Hageb a headache. The proliferation of “special assessments” - local bed taxes that range from 1 to 5 percent or more of the room charge - has some planners wondering why their attendees’ hotel bills are looking more and more like an itemized bill for digital cable.

CVB executives have an answer: Special assessments, they say, are a necessary evil to fund convention centers, websites, airport welcome booths, signage, and all the “free” services you expect when bringing a convention to a city. “Some [special assessments] are called tourism-promotion fees, others are called a convention-center tax or auditorium tax. Almost every city has them,” said Karen Staples, CMP, CASE, eastern regional director of sales for Visit Spokane. “Those fees actually become a fund available to help pay for things that planners find challenging in a particular city. It’s a real benefit.”

That may be true, but for planners these assessments add up to “a significant amount,” said Stuart Ruff, CMP, CGMP, senior planner of meetings, conventions, and events strategy for the New York City–based International Trademark Association (INTA). INTA holds four international and four large domestic conferences annually, ranging from 250 to more than 9,000 attendees. “Personally, sometimes I do wonder what these taxes are and where the money is going,” Ruff said. “I’ll pay more attention if the amount is really high. But I can’t really do anything about it. We probably wouldn’t walk away from a property over it.”

What They Mean By Special Assessment

Over the past three years, cities including Boston, New York, Las Vegas, Baltimore, San Jose, Calif., and Atlanta have increased room taxes with special assessments. The last major study on the issue, conducted by the American Hotel & Lodging Association in 2008, showed that room taxes generate $14 billion annually, with an average tax of 12.62 percent. In a 2011 survey by the U.S. Travel Association, 68 percent of travelers complained hotel taxes were “very high” or “high.”

In San Diego, for example, hoteliers on April 24 approved a proposal for a tiered assessment of 1 to 3 percent of a hotel’s room rate (depending on the property’s proximity to downtown) to fund a $550-million expansion of the convention center. The tax will be added to an existing 10.5-percent transient occupancy tax and a 2-percent Tourism Marketing District (TMD) tax. With all those taxes added in, an advertised room rate of, say, $239 would total $275.

The 2-percent TMD tax was the city’s first special assessment on hotel rooms, levied in 2008 when, “frankly, the city stopped funding tourism,” said Joe Terzi, president and CEO of the San Diego Convention & Visitors Bureau. The success of the TMD tax was the basis for the convention-center special assessment. “Those funds go directly to pay for the bonding of the projected costs of the convention center expansion,” Terzi said. “It’s a significant expansion.”

Indeed, when the expansion is completed, the center will have the largest exhibit hall on the West Coast, with a little less than 800,000 square feet of contiguous exhibit space, as well as an additional 80,000-square-foot ballroom and another 100,000 square feet of meeting space. Revenues from the new tax would cover about three-quarters of the bonds needed for the project, Terzi said, with the city and port of San Diego covering the rest. “We’ll be graduating from what I think of as mid-tier size to the upper tier and able to accommodate some of the premium, larger conventions that we’re either shut out of or lose because we don’t have enough space,” Terzi said. “It’s a major enhancement to the existing building.”

Hotels in Sacramento, Calif., recently approved an increase in the city’s TMD tax - from a flat $1.50 fee to a rate of 1 to 3 percent of the room rate, based on a hotel’s proximity to the downtown core, said Steve Hammond, president and CEO of the Sacramento Convention & Visitors Bureau. The city’s previously existing occupancy tax plus the district tax will range from 13 to 15 percent total, a rate that Hammond calls “very competitive” with other cities throughout California. The funds from the increased TMD tax are slated for online marketing and promotion, familiarization tours for planners, and education programs for local hospitality and lodging managers on service enhancements and marketing strategies in the meetings industry.

It’s the first increase to Sacramento’s TMD tax in more than a decade, according to Hammond. At the time it was first implemented, in 2001, it was only the second such assessment levied in the state. “Since that time, 65 new tourism BIDs [Business Improvement Districts] have been established, and there are about 10 more in some phase of planning,” Hammond said. “As you can see from these numbers, assessments have become very commonplace. During this challenging economy, our hotels have agreed to a modest increase to ensure that the Sacramento Convention & Visitors Bureau has the resources to continue to deliver the types of services that meeting planners and visitors have come to expect from Sacramento.”

Where Your Occupancy Tax Really Goes

A common misconception among planners is that general occupancy taxes stay within a city or destination to fund local tourism and hospitality projects, said Visit Spokane’s Staples. Instead, states and cities often use these revenues to boost transportation and airport budgets; or they’re put into a large general fund that Staples calls a “big, black hole.” “Planners just don’t understand [occupancy taxes],” she said, “because they are just looking at their budget and their bottom line, and they always complain.”

Of the 15 percent or so collected in occupancy tax, the city or state may give back “1 or 2 percent” to convention bureaus for marketing purposes, Staples said, and a CVB will set aside some of that money to incentivize new business. While Spokane uses part of its allocation from occupancy-tax revenues to fund grants for member projects and initiatives such as new signage and to pay for transportation costs to bring planners in for fam trips, Staples said, the revenue isn't reliable enough for large or sustained projects such as a convention-center expansion. “Those taxes that we get back from the state are always, in the eyes